Legal considerations for Coronavirus lending
For businesses now focused on recovery, funding is still available through the Government backed schemes but it is important to understand exactly what you might be undertaking if you apply.
For small-medium sized firms the Business Bounce Back Scheme (BBLS) provides borrowing from £2k up to 25% of their turnover (up to a maximum of £50k).
The Government guarantees 100% of the loan and there are no fees or interest to pay for the first year. The length of the loan is six years and you can repay it early without a fee. The borrower remains liable for 100% of the loan.
To be eligible your business has to be based in the UK, to have been established before 1 March 2020 and been adversely impacted by the Coronavirus. Businesses cannot apply if they are banks, insurers and reinsurers, public sector bodies and state funded primary and secondary schools. If your business has received a loan of up to £50,000 under the CBILS, CLBILS or Covid-19 Corporate Financing Facility then you can transfer it to the Bounce Back Loan Scheme before
4 November 2020.
CBILS is for larger lending facilities of up to £5m for businesses (with turnover up to £45m) who are experiencing trading difficulties due to Coronavirus and it provides the lender with a Government-backed guarantee. The borrower still remains liable for 100% of the debt with a Government backed guarantee of 80% of the debt advanced by the lender. CBILS can be used
to support a wide range of business finance facilities:
- Term loans
- Asset finance
- Invoice finance
Sarah Astley comments: “There is still time to apply for those businesses who need access to funding but there will need to be considerable preparation and the business must be eligible under the relevant criteria. It is important that business owners fully understand the terms of borrowing under one of the schemes. Businesses need to check their constitutional documents to make sure there are no restrictions on them borrowing as well as their existing commercial or banking documentation. Because this is quite a complex area, I would advise business owners to take advice to fully understand what their legal responsibilities are and how this may impact on existing financial covenants or constitutional documents.”